Bond Yield Calcuation with HP-12c - Help, please!

kmiklas

kmiklas

I'm working through the following example with an HP-12c, but can't get the right answer, and it's frustrating the **** out of me. Where am I going wrong? It's from Bond Markets, Analysis, and Strategies, 9th Ed. by Fabozzi on Pg. 35. BTW it's not a homework question; it's a book example.

In sum, they get an answer of $931.69; I get $1000.00. Grrrr..... I'm entering the figures into an HP-12c like so

fCLX :)
3 -> n (Three coupon payments total)
10 -> i (Assumed 10% interest rate)
PMT -> 100 (Coupon payment value)
FV -> 1000 (Future value; face/par value of bond)
PV (Present value gives -$1000!?)
CHS

Were am I going wrong? Details follow...

"Suppose that a financial instrument selling for $903.10 promises to make the following annual payments:

Code: 
Years from Now         Promised Annual Payments
                       (Cash Flow to Investor)
1                      $ 100
2                      $ 100
3                      $ 100
4                      $ 1,000

"To compute yield, different interest rates must be tried until the present value of the cash flows is equal to $903.10 (the price of the financial instrument). Trying an annual interest rate of 10% gives us the following present value:

Code: 
Years from Now   Promised Annual Payments     Present Value
                                              of Cash Flow @10%

1                $ 100                        $ 90.91
2                $ 100                        $ 82.64
3                $ 100                        $ 75.13
4                $ 1,000                      $ 683.01
                                              ---------
                                              $ 931.69


 
HP-12c? Isn't that Reverse Polish input or something?!? I like it......

At any rate, a trap I always recall: is the sale (the pricing) at the beginning of the 4th period, or the end? It doesn't jump out at me in the question...
 
kmiklas said:
I'm working through the following example with an HP-12c, but can't get the right answer, and it's frustrating the **** out of me. Where am I going wrong? It's from Bond Markets, Analysis, and Strategies, 9th Ed. by Fabozzi on Pg. 35. BTW it's not a homework question; it's a book example.

In sum, they get an answer of $931.69; I get $1000.00. Grrrr..... I'm entering the figures into an HP-12c like so

fCLX :)
3 -> n (Three coupon payments total)
10 -> i (Assumed 10% interest rate)
PMT -> 100 (Coupon payment value)
FV -> 1000 (Future value; face/par value of bond)
PV (Present value gives -$1000!?)
CHS

Were am I going wrong? Details follow...

"Suppose that a financial instrument selling for $903.10 promises to make the following annual payments:

Code: 
Years from Now         Promised Annual Payments
                       (Cash Flow to Investor)
1                      $ 100
2                      $ 100
3                      $ 100
4                      $ 1,000

"To compute yield, different interest rates must be tried until the present value of the cash flows is equal to $903.10 (the price of the financial instrument). Trying an annual interest rate of 10% gives us the following present value:

Code: 
Years from Now   Promised Annual Payments     Present Value
                                              of Cash Flow @10%

1                $ 100                        $ 90.91
2                $ 100                        $ 82.64
3                $ 100                        $ 75.13
4                $ 1,000                      $ 683.01
                                              ---------
                                              $ 931.69
More...

Your HP12 is assuming a 100 coupon on the fourth year : so the final payment is 1100 vs 1000 in the example. The extra 100 in your HP calc has a PV of about 68.3
 
newwurldmn said:
Your HP12 is assuming a 100 coupon on the fourth year : so the final payment is 1100 vs 1000 in the example. The extra 100 in your HP calc has a PV of about 68.3
More...
End-of-period-ism! Full Couponosis! :wtf:

(Takes you back, don't it??:D))
 
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